Key points of investment:

An optical communication high-tech enterprise with distinctive technical characteristics

Established in 2000, Wuxi Deceli Optoelectronics Technology Co., Ltd. has long been committed to technical research and product development for long-distance optical transmission. It has maintained strong technical advantages in the fields of broad-spectrum amplifiers, miniaturized pluggable amplifiers, high-speed long-range coherent and non-coherent optical transceiver modules, high-capacity intelligent data link acquisition subsystems, ultra-long-range transmission subsystems, etc., and has established distinctive technical characteristics in the industry and maintained a certain position in the industry.

Computing network construction and domestic backbone network upgrades bring industry opportunities LightCounting predicts that as demand for AI computing power increases, the upgrade of DC cluster connections is also accelerating, and the shipment volume of 400ZR/ZR+ is expected to increase in 2024-2025. The long-range WDWM optical module market is also a rapidly growing segment. In 2023, six ministries and commissions including the Ministry of Industry and Information Technology jointly issued the “Action Plan for High-Quality Development of Computing Infrastructure”, which puts forward specific requirements for the construction of long-distance, provincial and metropolitan computing power networks. China Mobile has begun construction of a 400G OTN backbone network. The long-distance optical communication industry of 40KM and above has strong growth certainty in terms of technology trends, industrial policies, and downstream demand.

Product upgrades and capacity increases drive long-term performance growth

The company's L++ amplifier participated in China Mobile's 400G OTN backbone network test, and the development of the 400G coherent optical module is progressing smoothly. The company's IPO fund-raising project can add production capacity of 1.1 million high-speed optical transceiver modules per year. 400G long-range optical transceiver modules can be delivered in batches, which is expected to increase the average annual revenue by 1,332 billion yuan. After completion of Decoli's overseas R&D and production base project in Thailand, it added an annual production capacity of 580,000 optical transceiver modules, 30,000 optical amplifiers, and 0.5 million sets of optical transmission subsystems. The operating period is expected to achieve an average annual revenue of 616 million yuan.

Profit Forecasts, Valuations, and Ratings

We expect the company's revenue for 2023-2025 to be 8.37/10.49/1,428 billion yuan, with a year-on-year growth rate of 17.19%/25.34%/36.09%, net profit of 1.14/1.66/231 million yuan, year-on-year growth rate of 12.10%/45.85%/38.90%, EPS of 1.13/1.65/2.29 yuan/share, and a 3-year CAGR of 31.44%. Comparable companies averaged 39.71 times PE in 2024. Given the company's leading edge in L++ amplifiers, China Mobile's official bid for the construction of the 400G OTN project, and the enhancing effect of the company's fund-raising project on 400G coherent optical modules, according to the relative valuation method, we gave the company 40 times PE in 2024, with a target price of 66.00 yuan, coverage for the first time, and a “buy” rating.

Risk warning: risk of high customer concentration, risk of demand falling short of expectations, supply chain risk, risk of product development iteration falling short of expectations, risk of fund-raising projects not meeting expectations.